NEW YORK ( TheStreet) -- Apple's ( AAPL) iPhone made all the difference for AT&T ( T) last quarter. As big phone rivals AT&T and Verizon ( VZ) square off this week on first-quarter earnings, Wall Street awaits the numbers from Ma Bell's wireless unit now that the iPhone sells at Verizon.
Analysts expect that the loss of Apple iPhone exclusivity took the steam out of AT&T's wireless growth. The number of new so-called post-paid contract customers AT&T added in the first quarter fell uncomfortably close to zero, according to at least one analyst. How close? UBS analyst John Hodulik had been calling for a net loss of 100,000 customers until he recently boosted his post-paid net add number for AT&T to 50,000. Most of the impact came as sales were siphoned off to the Verizon iPhone. But what AT&T lost in new iPhones, it partially made up for in old iPhones. Thanks to the recent heavy promotion of the $49 iPhone 3GS, AT&T avoided an alarming net loss of customers, said Hodulik. If Hodulik's 50,000 target is accurate, it would be 90% below the normal quarterly net add number of 538,250 post-paid customers that AT&T averaged last year. Meanwhile, over at Verizon, analysts are expecting strong subscriber gains, not just from the iPhone but also from the popularity of the Google ( GOOG) Android-powered HTC Thunderbolt. The street consensus calls for Verizon to have added 900,000 post-paid customers, fueled by an estimated 2.9 million iPhone sales, according to a preview report by Morgan Stanley's Simon Flannery Monday. But the loss of iPhone exclusivity doesn't fully explain the slowdown at AT&T. While record numbers of U.S. customers are drawn to pricey smartphones, there's also been a strong shift to lower-cost prepaid services. Hodulik points to the rising popularity of prepaid service and its corrosive effect on the post-paid market. Cheap phones and even cheaper month-to-month service plans have been catching on as people seek alternatives to hefty two-year service contracts. Hodulik predicts that, industry wide, prepaid will be 65% of the total net new customers in the first quarter, up from 51% in the fourth quarter.
Beneficiaries of this trend are outfits like MetroPCS ( PCS), which Hodulik expects may have signed on 500,000 prepaid customers in the most recent quarter. The threat of a massive customer exodus has prodded AT&T to make a big $39 billion takeover deal for No. 4 rival T-Mobile last month.
Investors cheered the move, which would allow AT&T to remove a price-cutting competitor and retake the top wireless slot. AT&T shares are up 17% over the past year, but they lag behind the 27% increase by Verizon over the same period. As far as the first quarter numbers, analysts are expecting AT&T to post an adjusted profit of 57 cents a share on $31.3 billion in sales, Wednesday before the bell. Verizon is expected to report earnings Thursday of 51 cents a share on $26.9 billion in revenue, according to Yahoo! Finance. --Written by Scott Moritz in New York. >To contact this writer, click here: Scott Moritz, or email: email@example.com. To follow Scott on Twitter, go to http://twitter.com/MoritzDispatch. >To send a tip, email: firstname.lastname@example.org.